Keep the Cash Flowing

The difference between profit and cash flow has been described as the difference between success and bankruptcy, especially for businesses that are just starting out. However, even wildly profitable businesses can succumb to bankruptcy because of issues with cash flow.

To begin, let's define our terms. Profit is a what. Cash flow is a when. 
Profit refers to the amount of money left over after your receive your revenue and expenses are paid. 
Cash flow is a matter of when your revenue comes in and when you have to pay your expenses.

The simplest example of good profit but bad cash flow looks like this: A company begins selling product in January. They sell everything in their warehouse and are a critical success. However, they won't receive the revenue for those sales until April. In the meantime, the company must somehow manage to pay off their expenses (salaries, rent, utilities, etc.). And this is where most businesses are unprepared and fall into bankruptcy.

It's also possible to be profit negative and cash positive.

This means that a business is sitting on a large sum of money that it uses to pay off expenses but is currently operating at a loss. If profits don't stabilize, this surplus fund will deteriorate until there isn't anything left and the business will enter bankruptcy. Ultimately, it's important that both your profits and cash flow be balanced. 

With all the expenses and possible revenue streams a company may have, predicting what's best to balance your profits and cash flow can be quite complicated.

Hawkings Epp Dumont offers cash flow forecasts for businesses so you can know exactly how much cash you'll need and when you'll need it. Talk to us. We'll make sure there are clear skies ahead.